Leverage hidden similarities and connections to succeed in new markets and avert emerging business risks! Firmly rooted in the latest cognitive science, Thematic Thinking helps you recognize your great opportunities and grave threats in distant but related industries and markets.

What is thematic similarity and how is it different from taxonomic similarity?

Why is thematic similarity so powerful as a tool for redrawing the competitive landscape?

Executives around the world push for innovation in their companies’ core business. However, many executives may be all but blind to great opportunities or grave threats, given their own mental framing of what their (core) business is. What they routinely overlook are great opportunities and grave threats in distant but related industries and markets. As markets change (think of digital consumers and the mobile Internet) and industries merge (think of health care and food), managers need to brush up on what they see as similar and hence what is related to their core business. Traditionally, strategic issues need to be sufficiently “close,” “related,” or “similar” (in terms of existing resources, production, and distribution lines) to be considered a feasible course of action and to be perceived by managers as a competitive threat or opportunity.1 For quite some time, researchers have concluded that despite sophisticated analytical tools, decisions ultimately rest on an individual’s “cognitive structures which categorize firms on the basis of their similarities and differences.”2 And people differ in the preference for how to process information and construct mental models. Therefore, we want you to do a small task before reading on (you can find the task in Table 1.1 and the solution in Table 1.2).

Table 1.1 Word Triad Test

dog

cat

bone

saxophone

harp

jazz

wine

champagne

cellar

pepperoni

pork chops

pizza

accident

ambulance

mishap

turkey

thanksgiving

swan

hot dog

mustard

steak

demon

possessed

ghost

police car

sedan

police officer

diamond ring

bracelet

engagement

can opener

can

bottle opener

spider

spider web

wasp

milk

soda

calcium

For each line in Table 1.1, choose the concept on the right or on the left side that appears to be most similar to the one stated between them. You can find the key to the test at the end of this chapter (Table 1.2).

It is perhaps surprising, but not everybody agrees on the similar pairs in this simple task. The thing is, people see similarity in different ways. Some people will say cat and dog are clearly similar, but a quite large proportion of the individuals being asked think dog and bone are clearly the most similar items. So which similarity type are you? The answer to this question matters big-time, because how you perceive similarity directly determines how you see your core business and what you see as related or unrelated to your core business.

The key to the test at the end of this chapter helps you identify if you are the thematic or the taxonomic type. Most individuals show a clear preference for one or the other type of answer (that is, either two-thirds or more taxonomic answers or two-thirds or more thematic answers; in our small test, this would mean eight or more). This leads to the next obvious question: What do cats, dogs, and bones have to do with creating innovative ideas and discovering business opportunities? Actually, quite a lot. The way we organize and retrieve knowledge builds the basis for every new idea. Even more importantly, it impacts which kind of idea we perceive as being worthwhile and which we perceive as making no sense at all. Such judgments are based on executives’ mental models of what their companies’ core business is about (and this mental model might be based on the wrong kind of similarity...).

So where to turn for guidance? Management and strategy literature is firmly rooted in the idea that related (rather than unrelated) businesses are what we want to consider—but relatedness is based on similarity and different people see different things as similar. Fortunately, cognitive psychology has a long tradition of investigating similarity, providing the management literature with a number of useful leads. To begin with, the similarity between two items has traditionally been thought of in taxonomic terms. That is, similarity has been seen as a function of overlapping features. Simply put, the degree of similarity depends on the extent that two objects are from the same superordinate category.3 After all, it makes intuitive sense that the similarity of two items increases with the number of common features and decreases with the number of different features, and those items with the same superordinate category are more similar than items with far removed superordinate categories. Thus, jogging shoes and walking boots are more similar than jogging shoes and MP3 players, for example. Perhaps due to the intuitive appeal of the assumption that similarity increases with common features and decreases with distinctive features, it has served as the basis for key frameworks such as strategic relatedness, taxonomies such as the Standard Industry Classification (SIC) system, and patent classification systems such as the International Patent Classification (IPC). For example, the IPC category F02 (combustion engines) contains internal-combustion piston engines, gas-turbine plants, jet-propulsion plants, and so on. The problem is that the taxonomic mindset is only part of the “truth”—giving you only one part of the picture. It is only partly true because it constrains your perspective to only one type of similarity, completely ignoring another type. This other type, thematic similarity, has the potential to open your eyes to a whole set of other ideas, businesses, and concrete products that are eclipsed by the traditional taxonomic outlook. Consider what this means for strategic opportunity search.

Strategic Opportunity Search

When the possibility arises that your basic conceptualization of similarity is in need of radical restructuring, the implications for managerial cognition are considerable. Recent research in cognitive science suggests just that. According to these findings, there is not just one, but two different kinds of similarity. That is, human beings tend to make judgments about how similar two items are based not only on taxonomic similarity, but also on thematic similarity. According to the traditional, taxonomic view, the jogging shoe industry is more similar to the hiking boot industry than to the MP3 player industry. Clearly, jogging shoes and MP3 players share few if any features, factor inputs, or distribution channels and are consequently taxonomically dissimilar. But two things are thematically similar if they functionally interact in the same scenario or event, even though they might be taxonomically dissimilar. For instance, jogging shoes and MP3 players are thematically similar because many people enjoy listening to music while exercising. Yet, since the invention of the Walkman, it took decision makers more than a quarter of a century to realize that the jogging shoe and portable music industries, while dissimilar taxonomically speaking, are similar thematically, and that this similarity could hold substantial commercial value. The Nike+, for example, is the result of a collaboration combining Apple’s iPod and a Nike jogging shoe: an Apple chip is put into the Nike shoe, and this product uses the proprietary “Tune Your Run” technology, where the iPod displays information about the distance ran, pace, and calories burned. It even allows the runner to select specific songs with a faster rhythm (by pushing a “PowerSong” button on the iPod), enabling people to turn on, at exactly the right moment, “the one song that always gets you through the home stretch.”4 Following its launch in June 2006, Nike sold more than 450,000 units of the hybrid product within the first three months, and an estimated 10 million units by April 2008.5 By 2013, the Nike+ ecosystem had 18 million global users and the product has been regularly updated.6

Taxonomic similarity eclipses an entire universe of potentially lucrative “matches,” which are dissimilar in one sense but similar in another. And thematic similarity enables you to put meaningful boundaries among the theoretically limitless mass of matches that are dissimilar. That is, if you recognize only the taxonomic matches in your universe, you’ll be constrained to the limits of your current industries, markets, and technologies, turning a blind eye not only to unconventional opportunities, but also critical threats that seem miles away taxonomically but are very close thematically.